Europe in deadlock

The confused state of the single currency, amid a general air of crisis in Europe made worse by last week’s terrorist attacks in Brussels, has big implications for the British referendum on 23 June.

There was no very positive message for the in-out debate from a discussion at the launch at the Reform Club in London on 22 March of the updated edition of Europe’s Deadlock – How the euro crisis could be solved and why it still won’t happen, by David Marsh, OMFIF managing director.

The book’s series of suggestions for resolving the crisis – including establishing a European treasury and finance ministry and making European governments rather than national central banks the owners of the European Central Bank – are highly unlikely to be realised, as Marsh admits in the book.

Antonio Armellini, a former Italian ambassador to India, argued on 22 March that the EU is a ‘political project’ and that the euro is a ‘tool’ for achieving this. Armellini warned of the dangers for the rest of Europe if the UK left, suggesting that this ‘could be the end of Europe’ and encourage rising nationalism. Yet if, as this suggests, the UK was a major factor holding Europe together, that will not provide a compelling reason for many voters for Britain to tie itself to Europe.

Lord (Nigel) Lawson, a former UK chancellor of the exchequer, and one of the leaders of the ‘leave’ campaign, criticised this approach to integration. He highlighted the historical experience of unification in the US, Germany and Italy, in which ‘political union came before monetary union’.

Lawson suggested that the only two possible solutions to the ‘euro disaster’ were to abandon the single currency altogether or accept ‘full-blooded political union’. If Britain does not want to be part of this union, it will have to leave.

All the speakers, including Lord (Meghnad) Desai, chairman of the OMFIF advisory board, and Lord (David) Owen, former UK foreign secretary, outlined alternatives to the status quo. These included Armellini’s idea of a system of ‘two Europes’, in which a federal ‘core’ based around countries committed to the euro pursued closer integration while creating an ‘outer’ grouping based around an enhanced free-trade zone.

The speakers disagreed on Britain’s role in this project. Lawson rejected the idea that the UK should vote to remain in the EU to lead the outer group of European countries. He argued instead that the UK must ‘become a self-governing democracy again’, suggesting it was ‘strange to vote to be part of a union you don’t agree with’.

Owen rejected the suggestion that leaving the EU would be a disaster, asking why, if this was the case, Prime Minister David Cameron called the referendum in the first place. Should the UK leave, it ‘would reach trade agreements with the other European countries’ similar to those it has now, given that the UK has a trade deficit with the rest of Europe. It would also remain an important member of Nato – the institution credited by both Owen and Lawson as being ‘the source of peace within Europe’, rather than the EU.

A vote to remain, however, could result in the Conservative party’s eurosceptic wing creating problems for the government over the remaining four years of parliament.

Armellini rejected Lawson’s criticism that part of Europe’s problem is the unelected and remote nature of European governance, highlighting that European commissioners are elected officials, while national treasury officials are not.

In the context of the rise of anti-EU parties and challenges to the principles of monetary union, free movement and political integration, the discussion of how to solve Europe’s deadlock is an important and timely one. But the problem is highly unlikely to be resolved – and in the short term the impasse could get still worse.

Ben Robinson is Economist at OMFIF. This is No.21 in the series.

OMFIF’s series on the UK EU referendum presents a wide variety of perspectives from Britain and around the world ahead of the 23 June poll. We are assuring a balance between many different points of view, in line with OMFIF’s overall neutral stance on the issue.